Hamilton Beach 2008 Annual Report Download - page 6

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To Our Stockholders
• NMHG Wholesale: Achieve a minimum operating profit margin of 9 percent
• NMHG Retail: Reach at least break-even financial performance while
building market position and transfer responsibility to independent dealers
when possible
• HBB: Achieve a minimum operating profit margin of 10 percent
• KC: Achieve a minimum operating profit margin of 5 percent
Subsidiary Financial Objectives:s
• NACoal: Earn a minimum return on capital employed of 13 percent and attain
positive Economic Value Income from all existing consolidated mining
operations and any new projects while maintaining or increasing the
profitability of all existing unconsolidated project mining operations
• All subsidiaries: Generate substantial cash flow before financing activities
Introduction
NACCO Industries, like many companies in the United
States and around the world, had a very challenging 2008.
While revenues increased slightly to $3.7 billion in 2008
compared with $3.6 billion in 2007, largely as a result of a
weak U.S. dollar, 2008 financial results were very disappointing
due to the effects of global economic conditions and the state
of current financial markets.
In last year’s annual report, we suggested that external
factors, including a slowing U.S. economy, were likely to affect
results significantly. The extent of the slowdown has been
significantly worse than expected, with the year ending amid
a deepening global recession which resulted in a decline in
the levels of our markets and in the volumes at each of our
subsidiaries. In addition, the year began with high material
cost inflation which was not able to be recovered adequately
through price increases. These factors, along with adverse
foreign currency movements, were key drivers of the significant
decrease in our financial results.
In addition, because the Company’s stock price at
December 31, 2008 was significantly below the Company’s
book value of tangible assets and book value of equity,
accounting rules required that the Company take a non-cash
write-off of goodwill and certain other intangible assets
totaling $435.7 million, or $431.6 million net of taxes of $4.1
million. The goodwill and intangibles were incurred largely as
a result of acquisitions in the late 1980s and early 1990s. The
Company recorded the pre-tax charges as follows: $351.1
million at NACCO Materials Handling Group (“NMHG”)
Wholesale, $80.7 million at Hamilton Beach and $3.9 million
at Kitchen Collection. The Company, however, believes that
current stock market valuations, which were the basis for
the impairment testing under existing accounting rules,
are generally reflective of broader global macro-economic
and stock market conditions rather than a reflection of the
operating fundamentals and the programs being implemented
at each of our subsidiaries.
Also during 2008, the Company recognized non-cash
charges of $29.8 million against the accumulated deferred tax
assets for the European and Australian operations and certain
U.S. state taxing jurisdictions of NMHG’s Wholesale and
Retail subsidiaries. While these deferred tax assets have been
charged against income, their benefit is still available to the
Company as income is generated in the future.
In the context of the 2008 market conditions and
including the goodwill and intangible assets impairment
charges and deferred tax asset charges, in 2008 the Company
incurred a consolidated net loss of $437.6 million, or $52.84
per share; NMHG Wholesale incurred a net loss of $365.6
million; NMHG Retail incurred a net loss of $10.4 million;
Hamilton Beach reported a net loss of $73.3 million; Kitchen
Collection reported a net loss of $10.0 million; and North
American Coal reported net income of $22.1 million.
Consolidated adjusted income for the year ended
December 31, 2008 was $23.8 million, or $2.87 per share. This
compares with net income in 2007 of $90.4 million, or $10.93
per diluted share.“Adjusted income or loss” in this letter refers
to net income or net loss results that exclude the goodwill and
intangible assets impairment charges as well as the charges
against the accumulated deferred tax assets. (For reconciliations
from GAAP results to the adjusted non-GAAP results, see
page 11.) The remaining discussion of 2008 results in this
letter relates only to adjusted income or adjusted loss unless
otherwise noted. Management believes a discussion of
adjusted income or adjusted loss is more reflective of NACCO’s
underlying business operations and assists investors and our
subsidiaries’ lenders, who often exclude non-cash charges
from their analyses, in better understanding the results of
operations of NACCO and its subsidiaries.